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PROPERTY

City ‘sold empty houses without finding owners’

The eastern German city of Leipzig is being rocked by a property scandal after the local council allegedly sold homes without tracking down the rightful owners, pocketing over €6 million.

City 'sold empty houses without finding owners'
Photo: DPA

According to a report in Wednesday’s Süddeutsche Zeitung newspaper, the city council is alleged to have sold off over 400 properties after reunification, without making adequate efforts to track down potential owners.

According to the report, the properties would be officially designated as having no owners, and then sold to interested bidders via a legal proxy; the paper claims the process of so-called “cold expropriation” dates back to the mid-1990s.

But numerous irregularities are now beginning to emerge. The Süddeutsche reports that not only were many of the properties still privately owned, but also that the legal proxy and the eventual buyer would often be one and the same person.

Properties were also sometimes sold as much as three times over to generate maximum income.

That income totalled around €6.3 million – and ended up in a municipal deposit account, under the name “herrenlose Häuser” (“abandoned houses”). City officials have in recent weeks made some efforts to trace the proprietors to whom this money rightfully belongs, but with little success.

“Hardly anyone has come forward,” city spokesman Matthias Hasberg told the paper, and many are likely to have died in the intervening period.

The scandal threatens to re-awaken the notorious Sachsensumpf (“Saxon swamp”) affair that scandalized the city in the late 1990s and early 2000s, where high-ranking politicians, judges and civil servants were alleged to have connections with organised crime and child prostitution rings.

An investigative process is now under way into the new scandal: the issue was debated in the city council last week, and some politicians have demanded the names of participants in the transactions.

Amid speculation that the new scandal could embroil many of the same people implicated in the Sachsensumpf affair, attention has turned to the city’s legal office, heavily involved in the first case.

The state parliament is considering a dissolution of the office, but state prosecutors say the office’s female director and two colleagues have already been placed on leave.

Leipzig Mayor Burkhard Jung has so far flatly denied any knowledge of the sales.

His predecessor Andreas Müller has been the department head responsible for the controversial legal office since 1994 – in other words since the start of the irregular sales. He has also disavowed any knowledge of the transactions.

The Süddeutsche points out that Müller told the city council last week he had read all the audit office reports during his tenure – yet it was the audit office that first drew attention to the irregularities in 1999.

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PROPERTY

The rules foreigners need to know when buying property in Germany

If you are serious about buying a property in Germany, either to live in or as a form of investment, you'll need to know these important rules on everything from residency to taxes.

The rules foreigners need to know when buying property in Germany

As we all know, property is generally a solid investment – as long as you have enough cash to afford the considerable up-front payments involved. 

Knowing whether now is the right time to buy is not easy. A recent drop in property prices in some German cities after years of dramatic price rises could indicate that there are deals to be had. On the other hand, the decision by central banks to put up interest rates in response to inflation could mean that taking out a mortgage will become less attractive.

But it’s not just the higher costs of borrowing that you should be aware of when buying a property. Additional costs, including taxes and real estate fees, could add a further 10 percent to the total spend on top of the actual price of your new home.

Meanwhile, people hoping to buy a property for themselves should be aware that sitting tenants are well protected. If you buy a property that is already let you will have to wait for months or even years before you are allowed to move in yourself.

Residency rules

The first thing to clear up, which will come as a relief to those who don’t hold German citizenship, is that there are no restrictions on foreigners buying property in Germany. That applies regardless of whether you are resident in the country or not.

Arguably, one downside of this light-touch approach is that it has helped fuel the massive surge in property prices that has taken place in recent years.

A report by Die Welt newspaper in 2018 found that almost half of property deals worth €10 million or more were carried out by foreign investors. Studies also suggest that the Italian mafia have bought billions of euros worth of German property in order to hide the source of their ill-gotten gains.

Taxes

Housing under construction in Lower Saxony. Photo: Julian Stratenschulte

The biggest additional cost of purchasing a property in Germany comes in the form of the Grunderwerbssteuer (land transfer tax). This tax applies both for properties that have already been built and for building plots.

The size of this tax is set at the state level, meaning that someone buying in Saxony (tax rate 3.5%), for instance, will face a much lower tax bill than some buying in neighbouring Thuringia (tax rate 6.5%).

Those huge differences in rates mean that the tax on a property sold at €500,000 could end up being €15,000 more just a few kilometres down the road.

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The states with the lowest Grunderwerbssteuer rates are Bavaria and Saxony, both of which haven’t raised the tax at all this century. Most other states have adjusted the rate over the past decade and purchasers should expect to pay an additional six percent of the purchase price to the taxman.

Debate has been raging in recent years about whether the size of the Grunderwerbssteuer is making it impossible for young people to get onto the property market. Studies show that it takes the average German four years to save to pay this sum alone, which often can’t be financed through a mortgage.

Some states, such as Bavaria, are pushing for a federal law which will free first-time buyers from paying the duty. The federal government has also promised to reform this tax but nothing is set in stone yet.

Estate agent fees

Up until recently, the person or company buying a property had to pay a huge commission of over seven percent of the purchase price to the estate agent. Coming on top of the land tax, that was a prohibitive cost for many people looking to get onto the property ladder.

But a law which was passed through the Bundestag in 2020 ensured that the estate agent fees would have to be split evenly between seller and buyer. Since then the buyer has “only” had to pay around 3.5 percent of the property price to the estate agent.

Experts advise though that one should try and negotiate a lower fee with the estate agent before the final contract is signed.

READ ALSO: How to sublet your apartment in Germany

Notary fees

Another notable cost involved in buying a property in Germany is the notary fee, which is the sum you give to the public office that ensures that the change of ownership becomes a matter of official record.

People who tear their hair out at the patchwork of rules across the German states will be relieved to know that the notary fee is set across the whole country at 1.5 percent of the purchase price.

Sitting tenants

A German couple view an unrented property. Photo: dpa/RTLZWEI, EndemolShine Germany | RTLZWEI

Another key thing to consider when buying a property is whether it has sitting tenants. 

If you are buying the property as a long-term investment there are several advantages to purchasing one which is already rented out, not least the fact that let properties tend to cost significantly less than unlet ones.

When you buy a let property the tenants and their rental contract come with it, which means you won’t have to deal with the hassle of finding a new tenant and agreeing on a new rental price.

On the other hand, German rental law ensures that tenants are protected against sudden hikes in their rental terms, meaning you might take over a property that is leased at under the current market value and find it hard to raise the rents. Rental law also protects tenants from eviction so as to prevent landlords from pushing them out in order to re-lease the property on more lucrative terms.

One of the few legitimate grounds for cancelling a rental contract is if you or an immediate family member plans to move into it, something known as Eigenbedarf (personal use). However, German rental law even gives some protection to sitting tenants in this scenario.

Typically a tenant who has been living in the property for a number of years needs to be given nine months’ notice before you can move in. In some states though, local laws give much more protection. In Berlin property owners are subject to a ten-year freeze on evicting a tenant starting from the point at which the property is purchased.

These complex rules surrounding tenancy rights mean that one it is advisable to consult a specialist lawyer about the particularities of local law before you make any such purchase.

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